- Ripple has been in a legal fight with the SEC for months now over whether it’s a security, but if you’re holding BNB or Tether, you may not be so safe either according to one legal expert.
- The attorney looked at the top five cryptos by market cap and their likelihood of being cracked down on by the SEC over securities violation, and only Bitcoin seems safe to him.
The legal battle between Ripple and the U.S Securities and Exchange Commission has been well-publicized and the entire crypto community is eagerly waiting to see where it goes. However, if you’re holding Tether or Binance Coin, there may be a reason for you to be concerned as well. According to one legal expert, BNB and USDT fit the criteria that the SEC looks at for securities violations. And once Ethereum migrates to proof-of-stake, it could become much more likely to attract the wrath of the SEC as well.
Attorney Jeremy Hogan looked at the probability of the SEC cracking down in his latest video. Hogan is beloved in the crypto community for his Legal Briefs videos following the Ripple vs. SEC lawsuit.
The SEC judges whether an asset is a security through the renowned Howey Test. This test classifies an asset as a security when a person invests money in a common enterprise and expects profits from the efforts of a third party.
The king of cryptos is the least susceptible to being labeled a security. However, contrary to popular opinion, BTC is also centralized to a degree. 1,000 people own up to 40 percent of the supply and 2 percent of wallets control 95 percent of all BTC in circulation. If the SEC believes that there were some common enterprises that manipulate the price of Bitcoin, it could come after the top crypto.
There’s an argument to be made against Bitcoin, but it’s very weak. I wouldn’t lose sleep over it.
Ethereum is very decentralized as well. However, unlike Bitcoin, Ethereum has a central entity – the Ethereum Foundation – which has a lot of influence on the crypto. Even more critically, Ethereum raised money from investors before it went live in a presale. This makes it more likely to fall under the scope of the SEC for securities violation.
Former SEC director William Hinman once stated that only Ethereum and Bitcoin are exempt from being classified as securities. However, according to Hogan, this will not matter in the slightest if the SEC decides to descend on Ethereum.
Ethereum 2.0: 6/10
Ethereum is switching to proof-of-stake in its ETH2 protocol upgrade. This makes it even more likely to be classified a security, Hogan believes. The biggest issue stems from the staking functionality in ETH2 in which investors lock away their money and expect to earn a profit. This will go towards the SEC’s rule that if investors expect a profit from the efforts of others, that makes the asset a security.
Definitely seems like the SEC might see a promotion and improvement of the network by a semi-centralized entity with the rollout of ETH2.
Tether is one of the most controversial coins in the market and according to Hogan, the most likely to be descended on by the SEC. USDT’s issues stretch back years, with the New York Attorney General accusing the company of misleading the market about its tokens’ backing. In addition, the company prints the USDT at will and is directly involved in their market performance.
I would say that gives Tether a 9 out of 10 on the danger rating, but you don’t own it, and probably never will and so I’m guessing you don’t care too much.
Binance Coin: 8.5/10
Binance Coin (BNB) doesn’t fare too well either. Binance, the exchange, had an ICO in July 2017 and sold BNB to the public, some of them American. The exchange has a great influence on the performance and profitability of the BNB token. It even buys back some of the BNB and burns them, just to make BNB more valuable.
For those reasons, we have a strong argument that the Binance Coin is a security.